Pros and Cons of Fixed Annuities

For retirees, the most attractive feature of fixed annuities is the assurance that it’ll provide a fixed income for life. But all investments have their good and bad points; and fixed annuities are no different. Let’s overview some of their advantages and disadvantages summarized in the table. Advantages The three important features of an annuity are tax-deferred accumulation, guarantee of principal, and guaranteed life income.  The tax-deferred accumulation – in comparison to a similar taxable investment – allows for greater accumulation since earnings are not taxed away annually. Annuities have been conservative vehicles for investment. Of course you should always check out the strength of any insurance company you’re considering buying from.   A good source is to get the Comdex rating of 80 or better from Vital Signs (see a financial professional) or a Weiss rating of B or better. With the guaranteed life income payout option, you don’t have to worry about market downturns that could rob you of income. Also if you can put off your payout until later, you’re monthly payout will increase not only from increased earnings but from your reduced life expectancy. Disadvantages Because an annuity is a long-term investment with tax-deferred status, the IRS [...]

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